Fonterra would want to retain 51 per cent of its Australian dairy business if it opts for an initial public offering (IPO), new documents on its plans suggest.
The Herald also understands if New Zealand's biggest business chooses not to do an IPO, the alternative to release capital from the fully integrated Australian business would be through a joint venture.
Fonterra on Thursday released a swag of reports along with its annual results and disclosure of its earnings and investment forecasts up to 2030.
A key assumption in documents about its business profile is "a reduction of 49 per cent in ownership of our Australian business in FY24".
Other assumptions are the 100 per cent divestment of the Soprole and Prolesur businesses in Chile, the sale of the remaining China farms and DPA Brazil in FY22.
This week's news that the dairy exporting heavyweight was exploring the option of an IPO for the integrated Australian manufacturing and consumer business while retaining a "significant" stake, caused a stir in the markets, with reports from across the Tasman that it could be valued at between $1-2 billion as a standalone business.
However, Fonterra leaders were tightlipped about the possible size of the retained stake, saying the idea was in its infancy and work had yet to start exploring the option.
Some market commentary predicted investors would be shy of participating in a Fonterra-led IPO due to disappointment around the weak performance of the listed Fonterra Shareholders' Fund, created by an IPO in 2012. The fund offered outside investors' dividend-carrying, non-voting units in farmer-owned shares. Only farmers can own shares in Fonterra, a wholly farmer-owned co-operative.
Fonterra chair Peter McBride has since emphasised the Australian IPO is only an option and "people should be careful about jumping to conclusions".
He didn't want to comment further than saying an IPO was "one consideration" only as Fonterra sought to fulfil its target of returning $1b to its 10,000-or so farmer shareholders by FY2024 through asset sales and improved earnings.
However, he rejected the suggestion of any comparison between the fund IPO and any Australian business IPO led by Fonterra.
"Remember that in Australia Fonterra is a corporate. It doesn't operate as a co-operative. There's a key difference. That business is more narrowly defined than, say, having a stake in Fonterra as a global business. The structure of how we operate in Australia is quite a different offering."
Fonterra on Thursday also released its latest thinking on a capital restructure after a review of weeks of consultation with farmer-shareholders on a proposal.
One of the main changes to the original May proposal and preferences was the board's decision not to buy out unit-holders in the Fonterra Shareholders' Fund and close the fund, but to keep it but cap its size. A buyback would cost Fonterra around $500 million.
An estimated 56 per cent of units in the fund are held by farmers and ex-farmers, who have been able to exchange shares for units.
The fund has its own administrative board, and chairman John Shewan in a statement to the NZX on Thursday expressed the independent fund subcommittee's "disappointment" at the decision. Shewan's response outlined several areas of concern, saying "some poor investment decisions and a lack of earnings have resulted in disappointing investment returns" for unit-holders.
Shewan said the capital structure review announced in May had caused further value loss for unit-holders.
McBride told the Herald the cap level had yet to be decided by Fonterra directors and further consultation with the fund on the cap and the capital proposal would be held, along with another round of consultation with farmer-shareholders.
"This is a consultative process. I've made that very clear to John Shewan."
However, McBride said the board would not be changing its decision not to buy back the fund.
Directors had been "agnostic" about the future of the fund and had expressed only "a slight preference" in May for a buyback, he said.
But feedback from intensive shareholder consultation and professional advice on the most efficient use of Fonterra capital had led to the decision to retain and cap the fund.
Directors are aiming to hold a shareholder vote in December. The proposal would need 75 per cent support from farmer-shareholders to get across the line.
The fund does not get to vote.